Quest Diagnostics 2006 Annual Report Download - page 94

Download and view the complete annual report

Please find page 94 of the 2006 Quest Diagnostics annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 131

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands unless otherwise indicated)
1. DESCRIPTION OF BUSINESS
Quest Diagnostics Incorporated and its subsidiaries (“Quest Diagnostics” or the “Company”) is the largest
clinical laboratory testing business in the United States. Prior to January 1, 1997, Quest Diagnostics was a wholly
owned subsidiary of Corning Incorporated (“Corning”). On December 31, 1996, Corning distributed all of the
outstanding shares of common stock of the Company to the stockholders of Corning as part of the “Spin-Off
Distribution”.
As the nation’s leading provider of diagnostic testing and services for the healthcare industry, Quest
Diagnostics offers a broad range of clinical laboratory testing services to patients, physicians, hospitals, healthcare
insurers, employers, governmental institutions and other commercial clinical laboratories. Quest Diagnostics is the
leading provider of esoteric testing, including gene-based testing. The Company is also the leading provider of
testing for drugs-of-abuse. Through the Company’s national network of laboratories and patient service centers,
and its esoteric testing laboratory and development facilities, Quest Diagnostics offers comprehensive and
innovative diagnostic testing, information and services used by physicians and other healthcare professionals to
make decisions to improve health. The Company is also a leading provider of anatomic pathology services,
testing to support clinical trials of new pharmaceuticals worldwide and risk assessment services for the life
insurance industry.
During 2006, Quest Diagnostics processed approximately 151 million requisitions through its extensive
network of laboratories and patient service centers in virtually every major metropolitan area throughout the
United States.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of all entities controlled by the Company through
its direct or indirect ownership of a majority voting interest and the accounts of any variable interest entities, as
defined in Financial Accounting Standards Board (“FASB”) Interpretation No. 46 “Consolidation of Variable
Interest Entities”, where the Company is subject to a majority of the risk of loss from the variable interest
entity’s activities, or entitled to receive a majority of the entity’s residual returns or both. The Company’s
relationships with variable interest entities were not material at December 31, 2006. Investments in entities which
the Company does not control, but in which it has a substantial ownership interest (generally between 20% and
49%) and can exercise significant influence, are accounted for using the equity method of accounting. As of
December 31, 2006 and 2005, the Company’s investments in affiliates accounted for under the equity method of
accounting totaled $38.5 million and $36.5 million, respectively. The Company’s share of equity earnings from
investments in affiliates, accounted for under the equity method, totaled $28.5 million, $26.2 million and $21.0
million, respectively, for 2006, 2005 and 2004. All significant intercompany accounts and transactions are
eliminated in consolidation.
Basis of Presentation
During the third quarter of 2006, the Company completed its wind-down of NID, a test kit manufacturing
subsidiary, and classified the operations of NID as discontinued operations. The accompanying consolidated
statements of operations and related disclosures have been restated to report the results of NID as discontinued
operations for all periods presented. See Note 15 for a further discussion of discontinued operations.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the
United States of America requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period. Actual results could
differ from those estimates.
F-7